Elon said that Tesla will be worth more than Aramco and Apple combined, at the time he
said that they had a combined market valuation of $4.4 trillion. This statement is somewhat
ambiguous. It could be inferred that one day Tesla will be worth more than them combined
literally, or their value at the time of this statement. However he go goes on to reinforce
this statement, by reminding us that he also said Tesla would be worth more than Apple
in the past, of which it was worth $700 billion at the time of that statement, and Tesla did
achieve that, and more.
4.4T So let's work with Tesla being worth $4.4
trillion. When do we think this might occur, according to Elon. I think he has given us
enough information we can use to calculate about when this might occur. Aside from this
one element, the p/e ratio. So let's estimate what that might be. I would like to place
this scenario with a trailing twelve month p/e ratio of 50. With that we can then calculate
how much profit is required to achieve this valuation, then work out how many vehicles
this might require to be delivered, and then estimate when we think Tesla will be at this
run rate.
P/E Now a p/e ratio of 50 may perhaps sound optimistic
for when Tesla is at this valuation, but here's the thing, this was a trailing twelve month
p/e ratio, and like I said, we are going to base this scenario on what Elon has told us.
So this would also be based on a rate of 50% year over year growth. A p/e ratio of 50 would
be the average for the last 12 months, and if there is 50% growth from the start of that
time, then it would mean that the current quarter of when we are at this valuation,
would be closer to a p/e ratio of 40 just relative to that quarter. Which likely seems
more reasonable. However, Tesla is expecting 50% growth in vehicles, which would likely
mean more than 50% growth in actual earnings. In other words, I think we are looking at
closer to a p/e ratio of 35 relative to the quarter in which Tesla hits this valuation.
Also remember we don't likely expect this valuation to occur next year, so by the time
this milestone is achieved, we are hopefully out of a recession, and thus not facing so
much p/e compression.
QUARTER So we will be working with a quarter with
a p/e of 35 times earnings.
That would mean Tesla are at a profit equivalent of $125 billion annually, but as it this is
just a cross section of a particular quarter then it would actually be 31 billion for the
quarter. Alright, there we go, easy, now we have a good idea of what earnings Tesla need
to hit if they are able to reach this valuation.
WHAT The next task is to work out what it's going
to take for Tesla to reach this level of earnings. Well like I said we are going assume in this
scenario that things are going somewhat as planned, and using 50% annual growth. This
Q4 shouldn't be too far off $6 billion in earnings, so we need 5 times as much profit
to reach this objective. Well at 50% annual growth, it would take 5 years to hit 5 times
as much profit. So do we assume it would be around 5 years then?
No, because like I said before we have been told 50% growth in vehicle production, not
profit. As Tesla expands and ramps up, the total cost per vehicle keeps dropping, most
noticeably in OPEX, one of Tesla's massive advantages over all the competition, their
huge operating leverage.
Not only that the vehicle ramping that we are expecting the most to generate this improvement
in deliveries, is going to be coming mainly from the new factories, which is fairly obvious
as the other factories are more or less close to capacity. However, Tesla may need more
factories than they have now to reach this level.
CURRENT FACTORIES But how about we first see what sort of profits
we can generate from all the existing factories when they are close to their capacities. For
capacity we are going to have 600,000 Model Ys from Texas and 500,000 Cybertrucks. Then
for Berlin we will have 600,000 Model Ys. Why these numbers? Well we are expecting 100
GWh a year capacity from Texas with the existing 4680 lines, and 50 GWh a year from Berlin
with the new 4680 factory there. This would align close to these capacities. Along with
these also being roughly the expected capacities that we have been officially told by Tesla.
4680 So ramping of these new factories with Tesla's
new batteries is going to mean that Tesla are selling, as people like to call it, the
high end luxury SUV version, the Long Range Model Y. This means costs will be lower and
average selling prices will be higher.
So let's just start a rough estimate of how much profit these factories will produce at
capacity. We will also adjust the ASPs slightly, to correct for what is most likely a weaker
US dollar than we have today, as the rates would have likely reduced by this stage. I
am sure most of you would expect that this valuation won't occur during the recession
anyway. Equally these prices are going to be in real terms, and not adjusted for inflation.
We will also ramp up Fremont and Shanghai a little bit too.
PROFIT Alright when they are all calculated we see
an increase of ASP to $70,000, which does seem a bit high, but we have ramped up the
S and X more, and the Cybertruck has a higher price tag. Also China is now a much lower
proportion of sales, and also this doesn't include any more price increases from the
US due to tax credits either. We are now also seeing gross auto margin hit
40%. Due to vehicles that cost less to build due to advances in manufacturing, making vehicles
with higher prices. Remember Elon said 4680 cells will cost $70 kWh, a very under rated
statement. The math says what it says, no matter if you don't believe it. And I am not
even including the $45 subsidy per kWh on batteries made in the US.
Tesla's ASPs may be higher in the US, there could very well be an additional $5,000 more
on each vehicle to compensate for the insane demand they are about to face when this tax
credit goes through. Also I am not including semi trucks in this model, it would have some
impact, but not major.
This comes to 800,000 deliveries for the quarter, so once the existing factories are ramped,
then we should see an annual run rate now of 3.2 million vehicles. Wow sounds like a
lot doesn't it, well just remember at the end of this year we are just about at annual
run rate of 2 million vehicles currently. And we expect 50% growth, or more, so this
rate could literally be in around a years time.
Although if we want to be exact, Tesla need 465,000 produced in this Q4 to hit 50%, so
Q4 in 2023 would only be 700,000, or an annual run rate of 2.8m. That doesn't sound too unachievable
to me given the resources they have. I think it's possible Tesla should exceed 50% growth
in 2023. I mean easily, if we are at a run rate of 2 million by the end of the year,
and 50% growth target is only 2.1 million. It's not going to take a miracle.
Anyway, these factories ramped takes us to $23 billion in gross profit. We are $8 billion
short of our target, and we haven't even added in OPEX or tax. Nor the other sides of the
business either though.
MORE FACTORIES We are going to need more vehicles produced
to reach our target. Now I am sure you are like me, and see that Giga Shanghai Model
Y is at annual run rate of 800,000. And we are talking about the new, state of the art
facilities producing just 600,000 Model Ys. And you would be forgiven for thinking that
is it possible that maybe the new factories could exceed Shanghai, given they are using
front and rear castings and structural battery packs. Yes, this also occurred to me. But
don't worry, you don't need to comment about Chinese work ethic, and how much harder they
work, and longer hours, because I will address that. These are automated production lines,
they move as fast as the robots can make the vehicles, the humans are not the bottlenecks.
Yes, the Chinese workers do work longer hours, but Tesla can get around that by hiring more
people for more shifts. These new factories are more efficient, and I expect to see more
output per squared feet, and I don't think I am going too far out on a limb.
In fact I would go far as to say that they could hit 1 million Model Ys a year, at least
once the cell production increases to match production. Although it could take a couple
of years to ramp that high.
Either way though, I would say if we are to hit this level of production we may need an
extra factory or two. We might hope that Tesla announce their next factory soon, and then
start construction early next year, but in reality probably wouldn't expect volume production
from this factory until mid to late 2024, and that's only an additional 250,000 vehicles
a year by that stage.
Now Tesla are working on their new model, which will supposedly be in volume production
in 2024, and this would have to come from a new factory too. This would lower the average
selling price. So for any new factory we might expect a lower ASP, I am just going to place
$40,000.
I have added two new sections, one for additional ramping from all factories, to a further one
million, and we will make the ASP $60,000 for these. This will include some extensions
to the current factories, and some additional fabs, but no additional factories. Then another
section which does include additional factories, which includes new locations, and possibly
the likes of the a model 3 factory in texas for example, or the new Shanghai factory that
we are expecting.
I will give these just a 40% margin as they have lower ASPs, so possibly not as profitable
as the long range model y nor the cybertruck. But I think these should be about the numbers
required to hit our goal.
This is $33 billion of gross auto profit, and we were after $31 billion net. Now when
I plug all these numbers in, and include the other areas of the business, which would have
also grown by this stage too. Then magically we have hit $31 billion in earnings.
WHEN So the question is, how long will it take
Tesla to hit this level of production? This is 1.3 million vehicles for the quarter, or
5.2 million annually. That's starting to look like a big number.
Well if we are going for 50% annual growth, starting with 1.4 million from 2022. Then
in 2025 we would expect total production of 4.7 million. So Q4 2025 would likely have
hit this milestone.
Or we could look at it at ramping these current factories, possibly 2 more years to get to
them to this rate of production. Then if we started to build 2 new factories next year,
then they probably would be able to hit a run rate of around 1 million collectively
by the end of 2025. Perhaps with small contributions of a 3rd or even 4th factory that may have
started construction in 2024.
Therefore my guess would be that Tesla might hit this valuation at around the end of 2025,
or perhaps the early 2026. So 3 to 3 and a half years away. Assuming this p/e ratio is
correct, and remember like I said, we would hope to be out of any sort of recession by
this date, so the p/e won't be as compressed. Also Tesla would have demonstrated more growth
by this stage and the market would feel more confidence in future growth with a good track
record. And also remember, this is based on what Elon said, and all going well.
However, look, at this stage, even if it has only hit about half that, then we're still
up 3 times from where we are today, which is an outstanding return. Half that should
be a very easy task. Also this does exclude our lottery tickets FSD and Robotaxis, which
could make that p/e ratio significantly higher. I think we do need to start construction of
that next building next year though, in order to reach this. This spreadsheet is also available
for download in Patreon.